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How Do Mortgage Brokers Get Paid in Australia?
A mortgage broker is usually paid by the lender, not you: typically an upfront commission plus a trail. Here's how it works, and what to check before you sign.
A mortgage broker is usually paid by the lender, not by you. When a broker arranges your home loan, the lender that writes it pays them a commission for bringing the business in. For most buyers that means the broker’s service costs nothing out of pocket, according to the Australian government’s MoneySmart service.
Which raises the obvious question: if you’re not paying, whose interest is the broker really serving? Brokers now arrange most of Australia’s new home loans, so it’s worth understanding before you sit down with one.
This guide follows the money: who pays a broker, how the commission works, what the rules changed, and the catch worth knowing before you sign. Start with what a mortgage broker does if you’re new to it.
- The lender pays your broker a commission for arranging the loan, so you usually pay nothing directly (ASIC MoneySmart). A broker may also charge a direct fee, but only in a written quote you sign first, and the lender’s own loan fees apply either way.
- The commission typically comes in two parts: an upfront payment when the loan settles, and an ongoing “trail” while the loan runs. The amount and terms depend on the broker’s remuneration arrangement.
- How a broker is paid can pull in certain directions, though it doesn’t mean any broker acts on it. Trail follows your balance, so a bigger loan means more trail, and an existing trail can dampen the push to refinance you.
- Since 1 January 2021, brokers must act in your best interests and put your interests first where they conflict. That’s a real protection, but not a guarantee of the cheapest suitable loan across the whole market.
- Don’t just accept the loan a broker recommends. Ask what they’re paid, whether it varies by lender, which lenders they compared, and why this loan suits you. Then compare the rate, fees, features and total cost.
Who actually pays a mortgage broker
The lender pays. When your loan settles, the lender that funded it pays your broker a commission for bringing in the business. That’s why brokers are usually described as free to the borrower: the money runs from the lender to the broker, and you don’t hand over a fee at the end (ASIC MoneySmart).
There is one exception worth knowing. A broker can charge you a direct fee in some cases, but if they do, it has to be set out in a written quote you sign first (ASIC MoneySmart). For most buyers, then, “free” holds as long as no such quote is on the table.
The two ways a broker can be paid: usually the lender, sometimes you. Source: ASIC MoneySmart.
What are upfront and trail commission?
The commission typically comes in two parts: an upfront payment when the loan settles, and an ongoing “trail” paid while the loan stays open. ASIC set this two-part structure out in its 2017 remuneration review (Report 516, based on earlier market data). The exact make-up depends on the broker’s remuneration arrangement. Both are a small percentage of the loan, though calculated on different bases, as the next paragraphs explain. There is no single published rate, and the figures vary by lender and change over time, so treat any headline number with care.
Trail is the part people miss. It’s a smaller commission the lender keeps paying your broker while the loan stays open, generally worked out on the balance still owing under the remuneration agreement. That’s the ongoing half of “how brokers make money”, and it matters because it ties the broker’s pay to the size of your loan and how long you keep it.
That ongoing pay cuts both ways. Because the trail stops if you leave, it can create a potential retention incentive. An existing trail is a reason a broker might not rush to move you to a cheaper loan, even when a refinance would suit you. ASIC flagged that conflict in its 2017 review, though it found no evidence of trail directly causing poor outcomes in that historical data (Report 516). The best-interests duty is meant to hold it in check. Ask what trail a broker earns, how it changes if you refinance, and when they’ll review your loan against cheaper options.
One rule tightened how upfront is worked out. Under reforms that began on 1 January 2021, the upfront commission must be based on what you actually draw down, not the full limit a lender approves (Financial Sector Reform (Hayne Royal Commission Response) Mortgage Brokers Regulations, 2020). Money held in a linked offset account broadly reduces that base too, and the precise figure follows a formula in the regulations. For you, the effect is the point that matters: a broker can no longer lift their pay just by getting you approved for a bigger limit than you’ll use. It doesn’t touch the other half, since a bigger loan you actually draw still earns more, so it’s still worth asking whether the recommended amount is more than you need.
How do brokers make money if it's free to you?
The lender pays the commission as a cost of distributing its loans, so you don’t get a separate bill for it. “Free to you” is real in the sense that no direct broker fee usually changes hands, though the lender’s own loan fees can still apply. It is not the same as free of any incentive, and the two are worth keeping apart.
You’ll often read that your interest rate is the same whether you use a broker or go direct. Treat that as an industry claim, not a given. The route alone doesn’t settle the price, so compare the actual loan on offer, on the same amount, rate type and features.
What the best-interests duty changed
Since 1 January 2021, mortgage brokers have been legally required to act in your best interests: a duty in the National Credit Act, with ASIC’s guidance on it in Regulatory Guide 273. Where a broker’s interests conflict with yours, the law requires them to put yours first. The same wave of reforms went at the pay itself: volume-based and campaign-based commissions were banned, and soft-dollar benefits were capped (Financial Sector Reform Mortgage Brokers Regulations, 2020). The point was to curb the forms of pay most likely to bend advice toward one lender.
It’s a genuine protection, and it’s worth knowing its edge. In practice, the duty means a broker should weigh more than one option, explain the costs and features, disclose what they’re paid, and be able to say why the recommendation suits you. What it doesn’t do is guarantee the market’s cheapest loan or make the underlying commission disappear; it works within their panel and what they know at the time. That changes what you can expect, without removing the reason to ask questions.
So what's the catch? What to check before you commit
The catch isn’t a hidden fee. It’s a handful of incentives and limits that follow from how a broker is paid. The best-interests duty (above) constrains them; they’re just easy to overlook, so five are worth carrying into the room:
- Trail can reward a bigger loan. Because trail is paid on the balance owing, there’s a potential incentive toward a larger loan rather than the smallest that does the job, so ask why the recommended amount is what it is.
- Commission differs by lender. Different lenders pay different rates, which is a potential conflict, so ask what was compared and why this loan won.
- The panel isn’t the whole market. A broker can only place your loan with lenders they’re accredited to, so a cheaper option off their panel simply won’t appear in their comparison.
- The duty isn’t a lowest-rate promise. Acting in your best interests is a real obligation, but it doesn’t guarantee the market’s cheapest loan.
- “Pre-approval” isn’t funding. It’s an indication, not a commitment to lend.
There’s also clawback. Many broker arrangements let the lender recover the upfront commission (from the broker or their aggregator) if the loan is repaid or refinanced early. Where it applies, reg 28VG (National Consumer Credit Protection Regulations) caps it at two years and bars anyone passing that cost on to you, so it isn’t a bill you’ll receive. Your loan’s own exit costs, like a discharge or break fee, are separate. One myth to retire while we’re here: trail commissions were not abolished. The 2019 Hayne royal commission recommended ending them, but the government did not implement that ban, so trail remains standard.
Put the three money events side by side and the pattern is clear: none of them lands on you as a bill, but the first two are why the incentive exists.
| Money event | What triggers it | Who pays whom | Does it reach you as a bill? |
|---|---|---|---|
| Upfront commission | The loan settles | Lender pays the broker | No; the lender pays it, not you |
| Trail commission | While the loan runs (on the balance owing) | Lender pays the broker | No; the lender pays it, not you |
| Clawback | Typically, if the loan ends early | Broker or aggregator repays the lender | No; reg 28VG bars passing it to you |
Should how a broker is paid change your decision?
Not on its own, but it should change what you check. Knowing a broker is lender-paid, and that trail ties their pay to your loan, is the difference between accepting a recommendation and testing it. Ask how many lenders they compared and why this loan won, whether their commission differs between those lenders, and whether any fee could fall to you.
The best preparation is your own numbers. You can get your borrowing position organised before you see a broker with knest.ai, so you walk in able to judge the answer rather than take it. For the full picture on fees, see what a broker actually costs you.
The bottom line for buyers
A mortgage broker is usually paid by the lender: an upfront commission at settlement and a smaller trail while your loan runs, worked out on the balance owing. For most buyers that means no direct fee, which is genuinely convenient. It also means the broker has an incentive tied to your loan, and understanding that is the whole point.
Follow the money. Know that the lender pays, that trail generally grows with the balance, and that the best-interests duty puts your interests first without promising the lowest rate. Then get your own position clear, ask what was compared, and judge the recommendation on its merits. The pay isn’t a reason to avoid a broker. It’s a reason to use one with your eyes open.
Get your income, deposit and goals organised with knest.ai’s free AI assistant, and understand the factors a lender weighs, so you can take sharper questions to a licensed broker and judge the answers for your own circumstances.
Ask knest.aiFrequently asked questions
Who pays a mortgage broker?
The lender, not you. A broker is paid a commission by the lender for arranging your loan, typically an upfront amount plus a smaller ongoing trail (ASIC MoneySmart). Because the lender covers it, most buyers pay the broker nothing directly. A broker can charge a direct fee in some cases, but only under a written quote you sign first.
How much commission does a mortgage broker get?
There’s no single published rate, and it varies by lender and over time. Rather than lean on a market average, ask the broker for the commission they may receive, which they’re required to disclose, and use the MFAA’s industry figures only for rough context.
Do brokers get paid more for a bigger loan?
Generally yes. Both the upfront and the ongoing trail are worked out from the loan or its balance, so a larger loan tends to mean a larger commission. That’s a potential conflict worth understanding, not a claim about how any particular broker behaves, and since 2021 the best-interests duty constrains it.
Is my interest rate the same whether I use a broker or go direct?
That’s a common claim, and it’s an industry one, not a given. The route alone doesn’t settle the price, so compare the actual loan on offer, on the same amount, rate type and features.
What is clawback, and would I have to pay it?
Clawback is where the lender recovers the broker’s upfront commission (from the broker or their aggregator) if the loan is repaid or refinanced early. Where an arrangement includes it, reg 28VG (National Consumer Credit Protection Regulations) caps it at two years and bars anyone passing that cost on to you, so it isn’t a bill you’ll receive. Your loan’s own exit costs, like a discharge or break fee, are separate.
Sources
- ASIC MoneySmart, “Using a mortgage broker”, retrieved 2026-09-11, https://moneysmart.gov.au/home-loans/using-a-mortgage-broker
- ASIC, Report 516 “Review of mortgage broker remuneration”, 16 March 2017 (historical, based on earlier market data), retrieved 2026-09-11, https://www.asic.gov.au/regulatory-resources/find-a-document/reports/rep-516-review-of-mortgage-broker-remuneration
- ASIC, Regulatory Guide 273 “Mortgage brokers: Best interests duty”, retrieved 2026-09-11, https://www.asic.gov.au/regulatory-resources/find-a-document/regulatory-guides/rg-273-mortgage-brokers-best-interests-duty/
- Federal Register of Legislation, Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers) (Mortgage Brokers) Regulations 2020 (F2020L01189) and Explanatory Statement, retrieved 2026-09-11, https://www.legislation.gov.au/Details/F2020L01189
- Federal Register of Legislation, National Consumer Credit Protection Regulations 2010, reg 28VG “Clawback requirements” (current compilation), retrieved 2026-09-11, https://www.legislation.gov.au/F2010L00631/latest/text
- Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report (February 2019), Recommendation 1.3 (broker remuneration); reported by ABC News, “Mortgage brokers struggle to make case for trailing commissions”, 14 February 2019, retrieved 2026-09-11, https://www.abc.net.au/news/2019-02-14/mortgage-brokers-struggle-to-make-case-for-commissions/10808910
- MFAA (Mortgage & Finance Association of Australia), “Mortgage broker market share reaches record 81.6%”, published September 2026, reporting June 2026 quarter data (by Cotality), retrieved 2026-09-11, https://www.mfaa.com.au/news/mortgage-broker-market-share-reaches-record-81-6
Eleanor Hayes, Editor, knest.ai
This article is general information for Australian home buyers, not personal financial or credit advice. knest.ai is a buyer-focused property intelligence platform that provides decision support, not a broker or lender service, and does not replace a licensed mortgage broker or lender. Any broker introduction through the Home Loan Expert is buyer-initiated and never automatic. Where knest.ai receives a benefit from such an introduction, that benefit is disclosed to you. Verify any figures for your own circumstances before you act.
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